Question 1

Financial statement manipulation risk is arguably present for all companies' financial statements.However,the risk is elevated for companies that:

Accepted Answer

A)  are heavily regulated. 
B)  have low amounts of debt. 
C)  have to make significant judgments for accounting estimates. 
D)  operate in stable economic environments. 
A)  are heavily regulated. 
B)  have low amounts of debt. 
C)  have to make significant judgments for accounting estimates. 
D)  operate in stable economic environments.

Question 2

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Accepted Answer

A)  Fraudulent financial reporting 
B)  Expense smoothing 
C)  Income smoothing 
D)  Each of the above is correct. 
A)  Fraudulent financial reporting 
B)  Expense smoothing 
C)  Income smoothing 
D)  Each of the above is correct.

Question 3

Audit committee oversight also serves as a deterrent to fraud by senior management.

Accepted Answer

A) True 
 B)False

Question 4

Auditors are required to perform certain procedures in every audit to address the risk of management override of internal controls.What are these procedures?

Accepted Answer

Auditing procedures require the followin

Question 5

In the fraud triangle,fraudulent financial reporting and misappropriation of assets:

Accepted Answer

A)  share little in common. 
B)  share most of the same risk factors. 
C)  share the same three conditions. 
D)  share most of the same conditions. 
A)  share little in common. 
B)  share most of the same risk factors. 
C)  share the same three conditions. 
D)  share most of the same conditions.

Question 6

An auditor uses ________ inquiry to corroborate or contradict prior information.

Accepted Answer

A)  assessment 
B)  declarative 
C)  interrogative 
D)  informational 
A)  assessment 
B)  declarative 
C)  interrogative 
D)  informational

Question 7

Briefly discuss the brainstorming session required by current auditing standards.Be sure to include a list of ideas that should be addressed in the session.

Accepted Answer

Auditing standards require the audit tea

Question 8

Most cases of fraudulent reporting involve:

Accepted Answer

A)  inadequate disclosures. 
B)  an overstatement of income. 
C)  an overstatement of liabilities. 
D)  an overstatement of expenses. 
A)  inadequate disclosures. 
B)  an overstatement of income. 
C)  an overstatement of liabilities. 
D)  an overstatement of expenses.

Question 9

Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.

Accepted Answer

A)  income smoothing 
B)  cookie jar reserves 
C)  cash 
D)  sales 
A)  income smoothing 
B)  cookie jar reserves 
C)  cash 
D)  sales

Question 10

Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement?

Accepted Answer

A)  Senior management emphasizes that it is very important to beat analyst estimates of earnings every reporting period. 
B)  Senior management emphasizes that budgeted amounts for expenses are to be achieved for each reporting period or explained in the variance analysis report. 
C)  Senior management emphasizes that job rotation is a worthwhile corporate objective. 
D)  Senior management emphasizes that job evaluations are based on performance. 
A)  Senior management emphasizes that it is very important to beat analyst estimates of earnings every reporting period. 
B)  Senior management emphasizes that budgeted amounts for expenses are to be achieved for each reporting period or explained in the variance analysis report. 
C)  Senior management emphasizes that job rotation is a worthwhile corporate objective. 
D)  Senior management emphasizes that job evaluations are based on performance.

Question 11

Fraud awareness training should be:

Accepted Answer

A)  broad and all-encompassing. 
B)  extensive and include details for all functional areas. 
C)  specifically related to the employee's job responsibility. 
D)  focused on employees understanding the importance of ethics. 
A)  broad and all-encompassing. 
B)  extensive and include details for all functional areas. 
C)  specifically related to the employee's job responsibility. 
D)  focused on employees understanding the importance of ethics.

Question 12

The presence of fraud risk factors increases the likelihood of fraud and may suggest that fraud is being perpetrated.

Accepted Answer

A) True 
 B)False

Question 13

PCAOB Standard 5 states that fraud of any magnitude by senior management is at least a significant deficiency in internal controls.

Accepted Answer

A) True 
 B)False

Question 14

Information and idea exchange sessions by the audit team are required by current auditing standards.

Accepted Answer

A) True 
 B)False

Question 15

"Cookie jar reserves" are often created by companies whenever their earnings are high to create reserves for future periods when earnings need to be "boosted" upward.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following are elements of the fraud triangle?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 17

Incentives and opportunities are two conditions that are generally present when financial statement fraud occurs.

Accepted Answer

A) True 
 B)False

Question 18

Management must recognize that almost any employee is capable of committing a dishonest act under the right circumstances.

Accepted Answer

A) True 
 B)False

Question 19

If employees have positive feelings about their employers,they are less likely to commit fraud.

Accepted Answer

A) True 
 B)False

Question 20

Misappropriation of assets is normally perpetrated at the lowest levels of the organization hierarchy.

Accepted Answer

A) True 
 B)False

Exam 11: Considering the Risk of Fraud

Financial statement manipulation risk is arguably present for all companies' financial statements.However,the risk is elevated for companies that:

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Audit committee oversight also serves as a deterrent to fraud by senior management.

Auditors are required to perform certain procedures in every audit to address the risk of management override of internal controls.What are these procedures?

In the fraud triangle,fraudulent financial reporting and misappropriation of assets:

An auditor uses ________ inquiry to corroborate or contradict prior information.

Briefly discuss the brainstorming session required by current auditing standards.Be sure to include a list of ideas that should be addressed in the session.

Most cases of fraudulent reporting involve:

Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.

Which of the following would the auditor be most concerned about regarding a heightened risk of intentional misstatement?

Fraud awareness training should be:

The presence of fraud risk factors increases the likelihood of fraud and may suggest that fraud is being perpetrated.

PCAOB Standard 5 states that fraud of any magnitude by senior management is at least a significant deficiency in internal controls.

Information and idea exchange sessions by the audit team are required by current auditing standards.

"Cookie jar reserves" are often created by companies whenever their earnings are high to create reserves for future periods when earnings need to be "boosted" upward.

Which of the following are elements of the fraud triangle?

Incentives and opportunities are two conditions that are generally present when financial statement fraud occurs.

Management must recognize that almost any employee is capable of committing a dishonest act under the right circumstances.

If employees have positive feelings about their employers,they are less likely to commit fraud.

Misappropriation of assets is normally perpetrated at the lowest levels of the organization hierarchy.

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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